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Wednesday, February 18th, 2009


[Source, page 19 of the “Global Employment Trends 2009” [pdf report by the United Nations International Labor Organization.]

Niall Ferguson, writing for Foreign Policy with foreboding sees the current economic crisis as the final element needed for “an age of upheaval”:

Economic volatility, plus ethnic disintegration, plus an empire in decline: That combination is about the most lethal in geopolitics. We now have all three. The age of upheaval starts now.

Certainly, around the world, the economic crisis is causing instability – as the legitimacy of many governments around the world is called into question. The constitutional legitimacy of most governments, the bargain they have made with their people, is based on a growing economy that provides for the people’s needs, and increasingly, also provides individual economic opportunity. While this “deal” was often discussed with regards to authoritarian capitalist systems such as China’s, it is also true of governments in democratic capitalist systems. Thus it makes sense that this economic crisis is a serious threat to the stability of nations throughout the world.

If, as the chart above suggests, the worst is yet to come, the current unrest is but a preview. Already though, this crisis has provoked significant concerns and serious riots. Nelson D. Schwartz described the worldwide destabilizing effects of this crisis in his New York Times piece entitled “Job Losses Pose a Threat to Stability Worldwide.” Schwartz saw the crisis as potentially more destabilizing for countries in the former Soviet bloc:

Many newer workers, especially those in countries that moved from communism to capitalism in the 1990s, have known only boom times since then. For them, the shift is especially jarring, a main reason for the violence that exploded recently in countries like Latvia, a former Soviet republic.

Meanwhile, Niall Ferguson described how the crisis is undermining one of the key stabilizing elements in Pakistan, it’s middle class:

Pakistan’s small but politically powerful middle class has been slammed by the collapse of the country’s stock market. Meanwhile, a rising proportion of the country’s huge population of young men are staring unemployment in the face. It is not a recipe for political stability.

Patrick Hosking in The Times of London predicts that Great Britain will be hit by social unrest as well, though it certainly is not as vulnerable to collapse as Pakistan which is simultaneously fighting a civil war:

[I]t may already be too late to prevent social unrest, especially in Britain, which is tipped to be one of the worst-hit countries economically.

The spectacle of bankers continuing to award themselves bonuses while taking taxpayer support is feeding an extraordinary public rage and a fierce sense of injustice. With 40,000 people losing their jobs each month, it is a recipe for trouble, come the traditional rioting months of the summer.

Despite the fact that we have yet to come to the “traditional rioting months of the summer,” there have been large riots in Latvia, Bulgaria, Iceland, Greece,1 and Russia. Russia has proven to be especially vulnerable – and as Arkady Ostrovsky of Foreign Policy explained, “The Kremlin is acutely aware that civil unrest in Russia could trigger the country’s disintegration.” He describes Putin, however, as the best of bad options:

Putin’s social contract has been based on co-opting Russia’s elites, bribing the population, and repressing the disobedient. A mixture of nationalistic rhetoric, rising incomes, and pride in Russia’s resurgence won public support. Until now, money has been Putin’s most powerful weapon. Rising incomes and a strong ruble (due to high commodity prices) have enabled Russians to enjoy imported food, holidays abroad, and foreign cars and technology. But even if the lives of ordinary people have not improved dramatically (49 percent say they have enough money for basic needs but struggle to buy much else), Russians at least felt that they had stopped sliding backward. Now things are looking bleak again…

But the chances of a liberal renaissance as a result of Putin’s social contract unraveling are highly unlikely. There is nothing more misleading than to portray Russia as a liberal-minded society suppressed by a nasty bunch of former KGB agents. The uncomfortable truth is, as Mikhail Khodorkovsky, the jailed boss of the Yukos oil company destroyed by the Kremlin, put it: Putin “is more liberal and more democratic than 70 percent of the population.” And unlike late Soviet leaders who inspired the contempt of the population, Putin even now remains authentically popular.2

What this seems to add up to – short of some economic miracle – is an increasingly unstable world – as long as this economic crisis lasts. At the same time, the trend towards the decentralization of power from the United States to corporations, individuals, non-governmental organizations, and other nations – the trend from unipolarity to nonpolarity, as Richard Haas describes it – could potentially make this problem harder to solve. Regardless, it seems certain that this crisis will reshape international politics – and that America’s power to effect the shape of what is to come is significant though limited.

  1. Greece’s riots were of course triggered by a police shooting, but it is hard to imagine they would be as intense without the instability caused by the financial crisis. []
  2. A side note: Ostrovsky also describes “Putin’s most damaging and possibly longest-lasting legacy…that he has played to Russia’s worst instincts. Rather than develop a sense of pride in Russia’s victory over the Soviet Union in 1991, Putin has fostered feelings of past humiliation and defeat, and subsequently a longing for retribution.” []

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Posted in Economics, Financial Crisis, Foreign Policy, Great Britain, Pakistan, Politics, Russia | 48 Comments »

The Highlights From Davos

Monday, February 2nd, 2009

[digg-reddit-me]Now that the World Economic Forum 2009 meeting in Davos, Switzerland has concluded, let me present some highlights.

The number one highlight, of course, is the Turkish Prime Minister, Tayyip Erdogan, storming off the stage after not being allowed to finish addressing Israeli Prime Minister Shimon Peres on the issue of Gaza:

Keep in mind that the “spirit of Davos” is supposed to be international cooperation and civil discussion between the business and political elites and the journalists who so eagerly report on them- and that Turkey and Israel are allies rather than enemies. Dr. George Friedman of the Stratfor Institute saw this as the clearest demonstration yet of Turkey’s increasingly prominent role as the leader of the Muslim world – and certainly Erdogan is being lionized for standing up to the Western media and the Israeli prime minister.

But the immediate buzz in the hall wasn’t about the global significance of this fit, but about breakdown of the spirit of Davos. For journalists, Davos is a kind of ideal as William Lewis of London’s the Telegraph described it:

The beauty of Davos is that one can meet large numbers of the world’s most important/interesting/powerful/egotistical people in the space of four days. Interviews that would otherwise take months to arrange, and hours to travel to, take place in a small Swiss ski resort. It’s a journalist’s dream…

More significantly, Lewis noted that this year, for the first time in many years, Americans did not dominate. Barack Obama only sent his advisor Valerie Jarrett. The most prominent American present was Bill Clinton. More on him later. Instead, Davos was dominated by the Chinese premier and Russian prime minister, each of whom confronted America and blamed it for the crises in their countries in a different manner. Joe Conanson of Salon described the mood:

Accustomed to flattering themselves and each other as benevolent masters of the globalizing world, they now confront an unprecedented crisis – actually a conglomeration of crises – that has diminished their financial worth and moral credibility.

What roused the global elitists from their glum torpor was the opportunity to lay blame for the economic catastrophe that has befallen the world. There was one obvious target: the United States of America, whose stupid and criminal bankers have inflicted so much harm on the whole of humanity. It is an undeniable fact that the Russian and Chinese leaders explored with great relish at every opportunity.

The Chinese premier, Wen Jiabao, in a characteristic manner, did not directly name America as the cause of the financial crisis, but elliptically described it as “attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit,” etcetera. It was clear to everyone who he was talking about. Wen’s speech was warmly received – but his private remarks to a meeting of Western business leaders demonstrated his real political skill – as he charmed the gathered free market capitalists by referencing such touchstones as the work of Adam Smith (which he had recently re-read.)

Then, there were Vladimir Putin’s remarks on the “perfect storm” that is the current financial crisis. The theory of the perfect storm – “the simultaneous occurrence of weather events which, taken individually, would be far less powerful than the storm resulting of their chance combination” – seems to be a rather apt metaphor for the confluence of events shaking the global system. Putin placed the blame directly on America though, in part no doubt due to his honest assessment, and in part to deflect responsibility. While he was giving this speech, violent protests calling on him to step down were being put down back in Russia as many blamed his financial mismanagement as he bet Russia’s economy on strong commodities prices.

Finally, there was former president Bill Clinton. Clinton addressed the assembled world political and economic leaders:

This is not a time for denial or delay. Do something. Give people confidence by showing confidence. Don’t give up. Don’t bet against yourself. Don’t bet against your country. This is still a good time to be alive.

Described as “the lone American to whom anyone at Davos might actually listen as he attempted to uphold the name of his country,” Clinton not only tried to rally the world leaders from their sour mood, but also responded more specifically to Putin in response to a question:

Later, Clinton met with Putin privately for an hour and a half, seemingly with the consent of the State Department and White House.

The overall lesson of this year’s Davos seems to be a reinforcement of the consensus view of the foreign policy establishment: We are now living in a nonpolar world in which, though America retains great power and is the most powerful single force, it will not hold the same leverage that it once did. We can no longer act as the world’s only superpower – but instead can take our place as the first among equals.

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